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Eskom the main worry for potential funders of Orion’s R3.9bn project

SA zinc and copper mine is at the mercy of unreliable power and soaring tariffs

23 April 2019 - 05:06 Allan Seccombe

Prieska headgear that Orion Minerals is hoping to bring back into production by 2021. Picture: SUPPLIED

Eskom, Eskom, Eskom was the answer Orion Minerals CEO Errol Smart gave when asked about the risk to restarting the Prieska copper and zinc mine in the Northern Cape.

Orion is on the cusp of raising between R3.3bn and R3.9bn towards restarting the mothballed mine and building a processing plant, having concluded an R81m empowerment transaction to restructure the black ownership element of the company and underlying operating company.

The R81m will be used to wrap up the project’s bankable feasibility study by the end of June, but Smart says he hopes this will be concluded by May.

Electricity supply is the leading cause of concern for potential funders of the Prieska project, which will need 35MW of power, said Smart.

State-owned power utility Eskom is struggling to keep up with electricity demand, while it has increased tariffs for mines by more than 500% since 2006 and has just been granted permission to hike prices by another 30% over the next three years.

“We have eight or nine banks working on this,” Smart said.

Asked what they were flagging as concerns, he said: “Eskom, SA’s mining rights, stability in SA mining law. South African stability as an investment destination. But Eskom, Eskom, Eskom.

“We need power stability and security in SA for growth. Eskom is the biggest risk to mining and any business in this country,” he said, adding Orion had proactively signed with a renewable energy company to conduct a feasibility study into alternatives to Eskom.

A solar farm near the mine has 175MW of electricity generation, to which the owners are adding another 250MW of wind-generated power. Another six solar plants have been approved within 20km of the mine site and are awaiting offtake agreements with Eskom, Smart said.

Smart said the solar power is sent to the mine’s substation on the mine’s property before being sent into the Eskom grid. “This is one of the discussions happening at the moment. It’s a bit shocking that we’d have to pay Eskom to take power that is delivered to us first.”

Prieska has sufficient sunlight for 85% of the year to support a solar farm and wind blowing at 5km per hour or more for 80% of the year, giving Orion another option to investigate, Smart said.

The bankers Orion is talking to want the company to put a third of equity funding into the project to balance the two-thirds of debt funding, Smart said.

“There are all sorts of funky things you can do — you can sell royalties, streams and forward sales and other instruments you can use to reduce the amount of equity you put in. We don’t want to do too many of those things because they become too difficult to manage,” Smart said.

If all goes well, Orion expects to start exporting concentrate early in 2022 after building stockpiles in 2021.